SINGAPORE – DBS Group reported on Wednesday (Feb 10) a 33 per cent plunge in fourth-quarter earnings as the bank’s net interest margin fell and it set aside higher allowances for potential bad loans amid the Covid-19 pandemic.

But DBS chief executive Piyush Gupta, was upbeat on the year ahead, saying the latest economic data supports a solid economic rebound this year and that the bank’s strong performance in January provided a head start to the year. 

DBS shares were up nine cents or 0.35 per cent to $26.02 at 9.37am after its results announcement.

South-east Asia’s biggest lender posted net profit of $1.01 billion, down from $1.5 billion a year ago. 

Its earnings were slightly lower than the $1.06 billion average estimate of seven analysts polled by Bloomberg. 

The board has declared a final dividend of 18 cents a share, down from 33 cents for the year-ago period, to which the bank’s scrip dividend scheme will apply. 

The bank’s net interest income dipped 13 per cent year on year to $2.12 billion. Its net interest margin fell 37 basis points to 1.49 per cent. 

Net interest margin is a key gauge of profitability for banks, measuring the difference between income earned from loans and the interest paid to depositors. 

Total allowances at $577 million, were almost five times higher than the year before. 

The bank’s non-performing loan ratio weakened to 1.6 per cent from 1.5 per cent a year ago. 

DBS’ earnings per share for the fourth quarter stood at $1.54, a decrease from $2.31 a year ago. 

For the full year, the bank’s net profit dropped 26 per cent to $4.72 billion due to a decline in net interest margin and a quadrupling of loan allowances to $3.07 billion. It is the bank’s first annual earnings decline in four years. 

Net interest income fell 6 per cent to $9.08 billion. Net interest margin was 27 basis points lower at 1.62 per cent, with most of the decline happening in the second and third quarters as central banks slashed interest rates at the end of the first quarter. 

Lower interest rates more than offset the impact of higher loan volumes and growth in current and savings accounts, DBS said. 

Loans grew 4 per cent in constant currency terms to $371 billion, including $2 billion of loans from Indian bank Lakshmi Vilas Bank (LVB). 

Non-trade corporate loans grew 9 per cent to $221 billion led by drawdowns in Singapore and Hong Kong. 
Trade loans fell 13 per cent to $38 billion due to less attractive pricing and reduced transaction values from lower oil prices. 

Consumer loans were stable at $114 billion. Housing loans were also largely unchanged as declines in the second and third quarters due partly to the circuit breaker were offset by a recovery in the fourth quarter from more new bookings. 

Mr Gupta said: “Business momentum was sustained in the fourth quarter and our pipeline for loans and fee income is healthy. We have been proactive through the crisis and enter the year with new growth platforms.” 

The fourth quarter results included amalgamation expenses of $33 million and general allowances of $87 million for LVB, which was amalgamated in November with provisional goodwill of $153 million.

Mr Gupta said LVB and DBS’ securities joint venture in China will enhance its presence in both key markets. 

“Initiatives such as the Digital Exchange, supply chain digitalisation and efforts to broaden wealth management to the mass market will reinforce our leadership in digital finance,” he added. 

DBS is the first local lender to report fourth-quarter earnings. Smaller peers OCBC and UOB will release theirs on Feb 24 and Feb 25, respectively.